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When You Inherit An IRA, You Also Might Inherit Some Complicated RMDs

By Julie Jason, originally posted on Forbes.com:

If you inherited an IRA (individual retirement account), the law says you must take distributions or pay a severe penalty to the U.S. Treasury. How severe? Fifty percent of the amount that should have been withdrawn, but wasn’t. These mandated withdrawals are called required minimum distributions or RMDs; in the case of inheritance, RMDs are not limited to people age 72 or older. 

Not So Simple

You would think that IRS rules on RMDs would be simple and straightforward for one reason: They are a revenue stream for the U.S. Treasury. The Treasury gets paid when an IRA withdrawal occurs. With very few exceptions, RMDs are taxed as “income.”

But, experts, such as Nicole Maholtz, president and CEO of Brentmark, say “not so simple.” Even attorneys get confused. Brentmark is a provider of calculation software for financial, estate, retirement and charitable planning.

First, a Word of Caution

Whenever you read about a tax topic such as this one, be aware that you need to talk to your personal tax adviser before taking any action. The simple reason is this: Your tax situation will be different from someone else’s. If you inherited an IRA or other tax-deferred account, reach out to your tax adviser to determine how and when to take RMDs.


Let’s go through an example, provided by Maholtz.

“Angie’s” husband, who was born in 1945, passed away in October of 2019 at the age of 74. Angie, then age 69, was the sole beneficiary of his IRA.

Spousal Rollover

Angie chose to make her husband’s IRA her own, as opposed to an “inherited IRA.” The mechanism is a “spousal rollover,” which changes the ownership of the IRA from her deceased husband’s IRA to her own. This option is only available for a spouse. An IRA inherited by a non-spouse is not eligible for a change of ownership; it remains an “inherited IRA.” 

Change of Ownership

As a result of her spousal rollover, Angie became the owner of her husband’s IRA. As a result, being age 69, she was not required to take RMDs. Again, this exception applies because Angie did a spousal rollover, which is not an option for non-spouse beneficiaries.

Angie named her sister-in-law (“Sue”) the sole beneficiary. Then, Angie (born in 1950) passed away early in 2020 at the age of 70. Sue, 58 (born in 1962), inherited Angie’s IRA.

2020 RMDs

Since Angie died before she was required to start RMDs, no RMD was due in the year of her death (2020). In fact, 2020 was a year in which IRA RMDs were waived for every owner and every beneficiary of an IRA, regardless of age; 2020 RMDs were waived for tax-deferred accounts (not defined benefit plans) by the CARES Act (Coronavirus Aid, Relief, and Economic Security Act).

Sue died in early 2021; John (born in 1966), Sue’s beneficiary, inherited the IRA.  

Calculating John’s RMD

Brentmark software titled “Retirement Distributions Planner” calls for the owner’s (Angie’s) date of birth (1950), her date of death (2020), Sue’s birthdate (1962) as Angie’s beneficiary, and the 12/31/2020 IRA balance ($500,000).

The result: No RMDs are required to be made in 2021 due to the SECURE Act (Setting Every Community Up for Retirement Enhancement Act). In fact, no RMDs are required until year 10 after Sue’s death. However, 100% (yes, 100%) of the IRA must be withdrawn on or before Dec. 31, 2030. Any amount can be withdrawn before then. This is the result under the new SECURE Act’s 10-year rule for inheritors of IRAs and other tax-deferred accounts for “non-exempt beneficiaries.” (Who is exempt is the subject of a follow-up post.)

Old Rules Allowed Longer Periods

Before the SECURE Act, if the owner of an IRA named, say, a grandchild as the beneficiary, when the owner (under RMD age) passed away, the inherited IRA’s RMDs extended over the grandchild’s life expectancy.  

That meant that RMDs could be stretched over many years, with the IRA being able to grow, tax-deferred, in the meantime. For example, using Brentmark software, if the grandfather was born in 1950 and died in 2019 (at age 69) with an IRA of $500,000 and annual expected growth of 5%, the grandchild (born in 2000) could stretch the IRA for decades, with total distributions in the millions of dollars.

SECURE Act’s New 10-Year Rule

The stretch IRA was replaced with the 10-year rule for most inheritors, new for deaths occurring in 2020 or later, thanks to (or actually “no thanks” to) the SECURE Act that was adopted in late 2019. Under the SECURE Act, the IRA balance must be completely distributed by the 10th anniversary year of the IRA owner’s death, with few exceptions, which I will address in a later post.


If you have questions or comments related to inherited IRAs, send them to me at forbes@juliejason.com. Let me know if you are interested in my writing about IRA and RMD experts who provide continuing education programs online on this topic. When you write to me, include the city and state you live in, and mention you are a forbes.com reader.

To read Julie Jason's books, go to: https://juliejason.com/books/julies-books.